Paper # Author Title
We study stochastic choice as the outcome of deliberate randomization. After first deriving a general representation of a stochastic choice function with such property, we proceed to characterize a model in which the agent has preferences over lotteries that belong to the Cautious Expected Utility class (Cerreia Vioglio et al., 2015), and the stochastic choice is the optimal mix among available options. This model links stochasticity of choice and the phenomenon of Certainty Bias, with both behaviors stemming from the same source: multiple utilities and caution. We show that this model is behaviorally distinct from models of Random Utility, as it typically violates the property of Regularity, shared by all of them. Download Paper
This online appendix provides additional proofs, extensions, and all experiment instructions and questionnaire. Download Paper
We study preferences over lotteries that pay a specific prize at uncertain dates. Expected Utility with convex discounting implies that individuals prefer receiving $x in a random date with mean t over receiving $x in t days for sure. Our experiment rejects this prediction. It suggests a link between preferences for payments at certain dates and standard risk aversion. Epstein-Zin (1989) preferences accommodate such behavior, and fit the data better than a model with probability weighting. We thus provide another justification for disentangling attitudes toward risk and time, as in Epstein-Zin, and suggest new theoretical restrictions on its key parameters. Download Paper
Many violations of the Independence axiom of Expected Utility can be traced to subjects' attraction to risk-free prospects. The key axiom in this paper, Negative Certainty Independence (Dillenberger, 2010), formalizes this tendency. Our main result is a utility representation of all preferences over monetary lotteries that satisfy Negative Certainty Independence together with basic rationality postulates. Such preferences can be represented as if the agent were unsure of how to evaluate a given lottery p; instead, she has in mind a set of possible utility functions over outcomes and displays a cautious behavior: she computes the certainty equivalent of p with respect to each possible function in the set and picks the smallest one. The set of utilities is unique in a well-defined sense. We show that our representation can also be derived from a `cautious' completion of an incomplete preference relation. Download Paper